Diageo’s/General Mills’ $2.3bn simultaneous offerings
Citigroup, Merrill Lynch, Morgan Stanley and Lehman Brothers were underwriters
In October 2004, Diageo sold 49.9 million shares of common stock held in General Mills for $45.20 per share; 33.3 million shares were sold in an underwritten secondary offering and the balance to General Mills Inc.
The financing for the repurchase of shares was the notable feature of the deal. General Mills sold $835m of preferred interests in General Mills Cereals LLC, an existing, consolidated General Mills subsidiary, to an affiliate of Lehman Brothers. For its part, Lehman Brothers issued a $750m mandatory exchangeable premium equity income security offering into General Mills common stock in October 2007 against a forward purchase contract to buy General Mills common stock in October 2007.
Overall, the dual tranche structure enhanced the execution of the jumbo offering – the second largest equity offering of the year – by allowing distribution across two unique universes of buyers. It provided potential for delivery of fewer shares under the purchase contract that were initially purchased by General Mills, for a potential net decrease in shares outstanding. And it allowed General Mills to recognise significant tax losses, which may be offset against capital gains recognised at the time of the offering.
